What Was Liberty Reserve?
Liberty Reserve was formerly a company based in Costa Rica that allowed people to send and receive secure payments without revealing their account numbers or real identities. Liberty Reserves (LRs) were the company's electronic currency, which could be converted back and forth between U.S. dollars or Euros. Headed by Arthur Budovsky, who renounced his American citizenship to create a new life in Costa Rica, the company operated from 2006-2013 until authorities cracked down on it when they discovered that it was a massive multi-billion dollar money laundering business.
Understanding Liberty Reserve
Customers used Liberty Reserve's online exchange service to process payment transactions and add or withdraw funds from their accounts. An account could be set up simply with a name and birth date, both of which did not have to be verified, and an email address. With little or no oversight of international financial transactions in Costa Rica, Liberty Reserve was free to build a money exchange business where legitimate, albeit unregulated, transactions could take place, but also where illegal money laundering could easily escape the eyes of the law. Each transaction fee was 1% of the processed amount or $2.99, whichever was less. At its peak, Liberty Reserve served more than one million customers worldwide, including 200,000 in the U.S. and processed around 12 million transactions a year, which enriched Budovsky and his associates.
The Patriot Act enabled U.S. authorities to go after Liberty Reserve because the company handled USD overseas. Part of the mandate of the Patriot Act was to make sure terrorists were unable to use USD to finance their activities. In 2013 the U.S. seized and shut down Liberty Reserve, and a year later Budovsky and several other former Liberty Reserve workers were arrested in Spain and extradited to the U.S. to face charges of conspiracy to commit money laundering. At first, Budovsky pleaded not guilty to the charges, but then several months later changed his plea to guilty in a deal with prosecutors. Some of the former workers of the company received relatively light penalties and sentences. The mastermind, Budovsky, on the other hand, was sentenced in 2016 to 20 years of incarceration.